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Business trends

Global mutual fund operators zero in on Japan's trove of cash

Maturing market attracts previously hesitant players

Global names like T. Rowe Price are seeing renewed opportunity in Japan.   © Reuters

TOKYO -- More global asset management companies are angling for a piece of Japan's over $16 trillion chest of household financial assets, as shifting industry attitudes and persistent negative rates in the country open up better opportunities for foreign players.

T. Rowe Price, a U.S. asset management company whose global portfolio totals $1.1 trillion, launched a publicly traded mutual fund in Japan in May that focuses on growth stocks around the world. The trust's net asset value had grown to 75.7 billion yen ($698 million) as of Friday.

The company has been operating in Japan since 1982, mainly through managing assets for pension funds and other institutional investors. But it set up a full-fledged unit in 2018 to make inroads into the retail market.

Northern Trust Asset Management, another U.S.-based player, partnered with Australia's Magellan Asset Management to begin offering in April a publicly traded mutual fund through Daiwa Asset Management that gives Japanese investors access to a Magellan investment fund.

Japan's asset management market still has much room for growth, said John McCareins, Northern Trust's head of asset management in the Asia-Pacific.

Financial assets held by Japanese households came to 1.83 quadrillion yen as of the end of 2018, according to the Bank of Japan. But a high turnover in mutual funds, fueled by banks and brokerages eager to earn more fees from investors, has kept many overseas asset managers away.

"Frequent inflows and outflows of funds hinder a stable asset management strategy," said a source at a foreign asset management company.

But a shift in the industry has nudged some players to reconsider, with Japan's Financial Services Agency enacting measures encouraging investors to hold on to mutual funds long-term.

"We spent two years outlining these changes in Japan to the U.S. headquarters, and we have decided Japan is finally moving toward long-term asset management," said Naoyuki Honda, T. Rowe's head for Japan.

Institutional investors who indirectly manage retail funds are also looking toward foreign options as negative rates persist in Japan. Nuveen, a wholly owned subsidiary of Teachers Insurance and Annuity Association of America, kicked asset management operations for pension funds and financial institutions into full gear in Japan with the creation of a local unit last year. It has doubled its assets under management here to about 700 billion yen since the end of 2017.

"There is great demand for foreign assets that can generate stable returns, like real estate," said Michinobu Suzuki, Nuveen's head for Japan.

With passive assets like exchange-traded funds dominating the U.S. and European markets, asset managers there have been locked in a battle to the bottom for transaction fees. Some want to cultivate demand in other advanced economies like Japan and Australia in order to expand their portfolios, which in turn could boost efficiency.

Players focusing on alternative assets are also eager to attract Japanese funds. France's Tikehau Capital, which is known for investing in debt of unlisted companies, set up a Tokyo location in April. Other foreign-based entities are scrambling for meetings with Japan's Government Pension Investment Fund, the world's largest pension fund, as well as Japan Post Bank.

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